ESG in Action: Evaluating Global Financials

Analysis of environmental, social and governance factors (ESG) is particularly important for bank investments because the confidence of their depositors and borrowers largely drives banks’ valuations.

Understanding environmental, social and governance (ESG) risks and dynamics is an important part of a robust investment process. Global financials offer a clear example of the value of putting ESG analysis in action.

Many investors feel the banking industry’s reputation has been tarnished in recent years following the many high-profile breakdowns in governance and breaches of public trust. At PIMCO, however, we do not believe that these past transgressions should be overwhelming factors in the forward-looking ESG assessment of individual banks, particularly for banks that performed well through the financial crisis or banks that have wholly revamped their management teams and governance processes. We view the much stronger regulatory framework and elevated stature of risk management as significant credit positives, both in terms of the higher capital and liquidity balances now held by most banks and in terms of lower earnings volatility. Although many of the changes have been mandated by regulators, leading banks have fully internalized the new rules and have invested heavily in redefining their culture and the conduct of their employees.

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Del Anderson

Credit Analyst

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Socially responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilized, or judgment exercised, by PIMCO will reflect the beliefs or values of any one particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and PIMCO is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results. All investments contain risk and may lose value. Investors should consult their investment professional prior to making an investment decision.

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